Let me offer you a deal, come to my beautiful island, invest your savings in a promising venture and pay no personal or corporate taxes on your profits. Sounds fantastic, right?
Of course, there are a few caveats you should know about before you invest, but I'm sure they won't influence your decision.
First, the island is in a dire financial situation, but its politicians tend to care more about getting re-elected than jumpstarting the economy. Therefore they might try to break their tax agreement with you at any moment in order to raise additional revenues and avoid budget cuts. To be perfectly honest, they already did this a couple of years ago, when during a weekend, they approved an unannounced 4 percent tax on an industry that represents 30 percent of the island's GDP.
Second, over the past decade, the island's police force has been cut in half, which basically means you are on your own in case of an emergency because response times are commonly over one hour.
Third, electricity prices are incredibly high and the service is unreliable, so don't be surprised if you experience multi-day power outages a couple of times a year. Fourth, figuring out how to get permits is close to impossible; you will be better off paying a local with government ties to expedite the process and, even then, it might take months. Still, a great deal, right? Maybe not.
I wrote this story to expose how tax incentives are close to useless in an unstable political environment. Industries like pharma, which have to invest hundreds of millions of dollars in multi-year projects to build their manufacturing plants, are specially warry of investing in unstable places because they can't just pick up their equipment and leave if conditions change.
Even industries like tech or finance, which could theoretically leave without major expenses, have a hard time moving to a volatile place. Employees are the main asset for these companies, and people don't usually want to move their families to dangerous places where the basic infrastructure is continuously failing.
It is, therefore, no wonder that our economic development efforts over the past decade have barely worked. As the island's financial crisis has worsened, our politicians have failed time and time again to step up and make the hard choices necessary to maintain stability and trust, instead opting for a populist rhetoric. In stark contrast, during the 2008 financial crisis, the Irish government went out of its way to publicly assure the pharmaceutical industry that they would honor their agreements.
Pharma went on to invest over $10 billion in new facilities in Ireland over the next decade, helping the country exit its financial crisis. Meanwhile, in Puerto Rico, the industry's assets have barely changed over the same period and our economy has remained stagnate.
In this new decade, Puerto Rico has an opportunity to learn from Ireland. Our government can kickstart economic development on the island by making the tough decisions necessary to create stability and trustworthiness.